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On Thursday, JPMorgan analysts made a significant adjustment to ZTO Express (NYSE:ZTO) stock, downgrading the rating from Overweight to Neutral and revising the price target downward to $23 from the previous target of $25. The change in stance comes after ZTO Express shares experienced a notable rebound, outperforming the MSCI China index by 6% since March. According to InvestingPro data, ZTO’s stock has gained over 12% in the past week, with the company maintaining a "GREAT" financial health score of 3.19 out of 4.
The analysts noted that while ZTO Express’s fiscal year 2024 results surpassed expectations, the company’s strategic pivot towards prioritizing volume growth may introduce new challenges. They expressed concerns that this shift could lead to margin dilution and potentially compromise ZTO’s market position. Despite these risks, JPMorgan acknowledged ZTO Express’s robust commitment to shareholder value through consistent repurchase plans and dividend payments, which they believe helps limit the stock’s downside potential. InvestingPro data shows the company offers a 3.12% dividend yield and has maintained dividend payments for seven consecutive years, while generating healthy revenue growth of 15.26% in the last twelve months.
In light of the company’s recent guidance and financial results, JPMorgan now anticipates a compound annual growth rate (CAGR) of 6% in non-GAAP net profit for ZTO Express from fiscal year 2025 to 2027. The stock currently trades at a P/E ratio of 14.71, with a market capitalization of $17.37 billion. The analysts have applied a discounted cash flow (DCF) analysis to arrive at the new price target of $23 for ZTO’s US ADR shares and HK$179 for its Hong Kong shares. This adjustment reflects what they see as a balanced risk-reward scenario for investors, though InvestingPro analysis suggests the stock may be undervalued at current levels.
ZTO Express, which is listed on the New York Stock Exchange, has not publicly responded to the rating downgrade and price target revision. The company’s share performance and future financial results will continue to be closely monitored by investors following this update from JPMorgan. For investors seeking deeper insights, InvestingPro offers 8 additional key tips about ZTO Express, including detailed analysis of its cash flow strength and market positioning.
In other recent news, ZTO Express reported fourth-quarter revenue that exceeded expectations, reaching RMB12.92 billion ($1.77 billion), surpassing analyst estimates of RMB11.71 billion. This marks a 21.7% increase compared to the same period last year, with parcel volume growing by 11% year-over-year to 9.67 billion parcels. However, the company’s adjusted earnings per American depositary share fell slightly short of projections, coming in at RMB3.24 ($0.44) against expectations of RMB3.28. For the full year 2024, ZTO Express saw revenue rise 15.3% to RMB44.28 billion ($6.07 billion), with adjusted net income increasing by 12.7% to RMB10.15 billion ($1.39 billion).
In another development, Citi analyst Lu Xu raised the firm’s price target for ZTO Express to $26.40 from $24.20, maintaining a Buy rating. This adjustment was influenced by ZTO’s commitment to its forecasted parcel growth and market share expansion strategy. The company also announced a semi-annual dividend of $0.35 per ADS, reflecting a 40% payout ratio. Additionally, ZTO Express has a remaining share buyback quota of $700 million and may seek an extension of this program. The firm expects parcel volume for 2025 to be between 40.8 billion and 42.2 billion, indicating a potential 20% to 24% year-over-year increase.
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